Court Denies Motion to Dismiss Funeral LLC Lawsuit
Owners of co-managed LLCs in North Carolina face heightened risks of dissolution claims amid internal management disputes.
Updated on Oct. 26, 2026 in Public Companies
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The North Carolina Business Court has denied a motion to dismiss a lawsuit aimed at dissolving two funeral service LLCs. The case remains active after a member alleged that a co-manager misappropriated company funds and assets for personal use.
Why it matters
This ruling highlights the legal risks for co-owned entities when operating agreements break down, particularly when one manager assumes unilateral control of company resources. It serves as a reminder of the grounds for judicial dissolution under state law when business conduct becomes untenable for equal partners.
The litigation involves 2 funeral service LLCs that are currently co-managed by the plaintiff and defendant. The status of these companies remains uncertain as the court proceeds with the dissolution case.
The players
Adam M. Conrad
Chief Judge of the North Carolina Business Court who presided over the ruling.
Davis v. McHatton
The active litigation case involving two co-managed funeral service LLCs.
The details
In Davis v. McHatton, the court declined to dismiss claims brought by a member alleging that their co-manager diverted staff and funds to outside ventures. Under North Carolina law, a member can seek judicial dissolution if the operating agreement no longer allows for practical business management or if liquidation is required to protect their interests. The defendant had argued for dismissal based on an expressed intent to purchase the plaintiff’s stake in the entities.
Timeline
October 26, 2026: The North Carolina Business Court issued the decision.
Market Landscape
This case marks a continuation of judicial scrutiny over LLC management disputes in North Carolina. It underscores how the state's dissolution standards act as a final recourse for members when operating agreements fail to govern internal company control.
Operators in co-managed businesses should review their operating agreements to ensure clear protocols exist for financial oversight and conflict resolution. If control becomes disputed, legal counsel should be consulted early to determine whether specific triggers for judicial dissolution are present.
The takeaway
Disputes over unilateral control and asset misappropriation can force an involuntary dissolution of an LLC. Owners should prioritize clear, documented internal controls to avoid the high costs of litigation when partner relations deteriorate.
Further reading
For additional context on corporate legal challenges, see Public Companies.
Source note: This article includes information reported by North Carolina Lawyers Weekly.
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